George Jurgensen 01

The WaMu Mess: No Surprise Here

My rough estimate is WAMU has quarterly provisions of $3B in Q3 and Q4 08 and ends the year with tangible book of about $9 a share and a still sizeable LLR. Allowing for some continuing though moderating losses into next year, stock should trade under year end book, in the 70-80% range for a target around $6.5. Sure, there are risks of a bank run, FDIC seizure, less Federal Home Loan Bank funding, and somewhat higher right offs, and the economy worsening. But the risk picture should clarify greatly as the year rolls around. Getting OREO off the books (limiting related expenses), and greater FHA intervention helping troubled homeowners, as indicated by growing sales volume in CA and the recent bailout bill signed into law, will also improve visibility. Stock is a decent value in the $5 range and a warrant on recovery into late 2009 and beyond.